The Fake Federal Budget Surplus

By Marc Breslow

This article is from the November/December 1998 issue of Dollars and Sense: The Magazine of Economic Justice available at

This article is from the November/December 1998 issue of Dollars & Sense magazine.

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If politicians were really impeached for abusing political power and lying to the American public on vital matters, then it would be the congressional Republicans rather than Bill Clinton on the hot seat. For many of them want to take the savings in the Social Security Trust Fund, pretend that this money constitutes a federal budget surplus, and use that as an excuse to cut taxes on the rich once again. "We've gone from deficits as far as the eye can see to surpluses for as far as the eye can see," gleefully says Pete Domenici of New Mexico, the chair of the Senate Budget Committee. In a supposedly more progressive stance, Clinton urges that the "surplus" be used not for tax cuts, but to help bail out Social Security.

But the truth is that virtually the entire $1.5 trillion in budget surpluses projected for the next decade come from an excess of Social Security revenues over spending during those years. These surpluses are simply the savings of current workers, and are needed to help pay for Social Security benefits once the Baby Boom generation begins to retire in the following decade.

Constant news reports of a budget surplus are based on the "unified budget," which is projected by the Congressional Budget Office (CBO), and includes Social Security. But the CBO also forecasts that the "on-budget" figures, which exclude Social Security, will remain in deficit until the year 2004, and will show only a trivial surplus through 2008.

The House Republicans want to spend the "surplus" on tax cuts. Yet these same legislators have been arguing that Social Security is insolvent, and should be privatized. Essentially, the Republicans want to spend the retirement savings of moderate- and low-income Americans on tax breaks which, as usual, they will target toward their wealthy campaign contributors. Then they will force us to play the stock market in order to replace Social Security.

But there is another way to look at this game, since these "surpluses" are part of the Social Security Trust Fund and legally cannot be used for other federal expenses. Instead, the CBO's "unified budget" provides an excuse for cutting taxes, even though by doing so the Republicans would throw the real federal budget back into deficit. And this deficit would likely be long-term, since it is so difficult to raise taxes once they have been lowered.

Why do many in Congress favor this course? Because Newt Gingrich and company don't really care about balancing the budget. Rather, they want to put more money in the hands of their friends, and prevent the federal government from having enough funds to operate effectively. That way there can be no question of restoring humane welfare benefits, paying for universal health care, or closely regulating big business.

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